Concentrating its efforts on its lead drug, HspE7, Stressgen Biotechnologies Corp. agreed to divest its bioreagents business in a move that adds a bit of capital to its coffers.
The San Diego-based company signed a definitive agreement to sell those assets for about C$8 million (US$6.4 million) to a newly formed firm, Stressgen Bioreagents Corp., funded by Ampersand Ventures. The transaction is expected to close in the next 30 days, at which time 26 of Stressgen's 103 employees will join the new company. In the interim, the company will provide transitional administrative services for some added revenue.
"Basically, we're making a decision here that we want to focus on drug development," Stressgen President and CEO Gregory McKee told BioWorld Today. "That's what we think the company is all about, and that's where we think we need to focus our resources and our management time."
In the past three years, the bioreagents business generated revenue slightly higher than C$5 million annually, and had a net income of between C$1.5 million and C$2 million. Stressgen, of Victoria, British Columbia, has no stake in the new company.
Concurrent with the sale, Stressgen withdrew plans for a $50 million common stock offering, citing unfavorable market conditions and its current valuation. Instead, the bioreagents divesture minimizes dilution, as the company looks to preserve funds by reducing its cash burn. That could result in layoffs, although that has not been decided.
Going forward with HspE7, Stressgen said it is actively seeking a development relationship that could supplant its current partner, F. Hoffmann-La Roche Ltd. In the existing agreement, Roche, of Basel, Switzerland, has an option to a first-generation HspE7 compound and a license to the product's underlying technology to generate and create a second-generation version.
The option lasts until three months after Stressgen were to file a biologics license application for the first-generation HspE7 compound. Should Roche exercise its right, the company then would end up with worldwide rights in all indications.
"You try to grab whatever you can and try to make this work between two companies that often have very different types of objectives," McKee said. "One of the features that we negotiated into this deal was the ability to shop this around to other companies."
That clause permits Stressgen to find a new partner at its will, unless Roche pays a "stop-shop fee" or exercises its option. In either case, Stressgen would gain funding from Roche if it decides to stick with the original HspE7 deal, a direction toward which Stressgen has pushed, McKee said.
But if Stressgen finds another partner, that original deal would be dissolved and the new partner could gain all HspE7 rights, although provisions exist under which Roche could keep rights in certain territories.
Stressgen's relationship to Roche stretches back about two years, when they reached agreement on a deal worth up to $204 million to Stressgen before a realignment of the terms was worked out six months later. (See BioWorld Today, June 25, 2003, and Dec. 3, 2003.)
In the meantime, the company is completing process development and manufacture of commercial-grade HspE7 clinical supplies to support a pivotal Phase III trial in recurrent respiratory papillomatosis, an orphan, fast-track indication that Stressgen hopes gets the product to the market as quickly as possible. The company continues to work with the FDA on details of a special protocol assessment for the pivotal work. It expects the SPA talks to conclude by the middle of this year, as well as having supplies ready for the study.
"This is our second round of discussions around the pivotal clinical trial," McKee said, noting that the multicenter study would include 130 to 140 patients and would be conducted in the U.S. and Canada. "The essence of the trial is essentially nailed down, but we don't have formal concurrence primarily because we are working on the CMC section."
The company also continues to work on generating commercial-grade supplies to support three HspE7 studies sponsored by the National Cancer Institute for cervical dysplasia. Protocols for those latter trials are approved and awaiting supplies.
Phase II data demonstrated a 40 percent response rate in high-grade cervical dysplasia patients, and findings from another study revealed a complete pathologic response in 32 percent of 31 patients and a 71 percent overall response. Both were single-arm studies, McKee conceded, but he added that such data suggest that the company continue to pursue that indication to broaden the product's development.
Other areas in which HspE7 could be used include genital warts and anal dysplasia.
"We've done several Phase II studies," McKee said, "across all those indications."
The drug is a CoVal fusion therapeutic vaccine designed for the treatment of diseases caused by the human papillomavirus. Stressgen is looking to partner other CoVal fusions in its technology platform to provide revenue from licensing fees and milestones, as well as co-development revenue to support HspE7 and other fusions through the commercialization process.
Prior to the deal with Ampersand, a private equity firm based in Wellesley, Mass., Stressgen had about C$22 million in reserve. On Thursday, Stressgen's shares (TSE:SSB) traded even at C32 cents.